Operations Management

Finding a Contract Manufacturer

If you outsource your production, finding the right contract manufacturer is a critical. This article contains advice on properly managing this important decision.

If you outsource your manufacturing or are planning on doing so in the future, finding a contract manufacturer can be tricky business.
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There are many choices for a co-packer from large corporations to smaller businesses. The cost of these manufacturers can be tremendous and the quality can vary greatly from one company to another.

Before choosing a contract manufacturer, make sure you've done your homework and complete a thorough analysis.

In my consulting experience, I have seen many companies outsource their production. The reason for this is typically the high costs of purchasing manufacturing equipment and maintaining warehousing facilities. Usually, the companies that I've witnessed outsource production choose a manufacturer based on price. While price is an important component, it can be third on the list behind quality and reliability.

When seeking a contract manufacturer, quality is of the utmost importance. It's no good saving a nickel per product only to have defective products that will be returned and lead to negative customer service. The quality of your product needs to be number one on your list.

If your manufacturer cannot deliver consistent quality, you need to find another contract manufacturer. Poor quality leads to added costs and dissatisfied customers. When choosing a co-packer, their level of quality should be at the top of your list.

Prior to choosing a contract manufacturer, you should visit their production facilities. Try and get a feel for their quality by analyzing their operation. Is the work place clean and organized? A messy working environment is usually a good indicator of poor quality. Are they documenting their processes? Documentation is a good sign of quality control. You should observe their manufacturing process and get a sense for how they produce and how involved the employees are in the process.

After quality, reliability is the second most important component when choosing a contract manufacturer. Will your supplier be able to meet your needs and deliver product on time? If they cannot be relied on, your deliveries will be late and your customers will suffer. This can be harder to gauge when you visit the facility, but you may be able to speak with other customers of the particular co-packer. Your contract manufacturer needs to be able to deliver a quality product consistently and be on time.

Once you've determined that a particular manufacturer can deliver consistent quality and they are reliable, you can factor price into the decision. Obviously, if you have two potential manufacturers who can both deliver quality and reliability; you should go with the less expensive option.

Still, there are other factors that need to be taken into account. The transportation of the product needs to be factored into the decision. Also, many co-packers charge different prices based on quantities. The most-likely quantity for your company needs to be factored into the decision as well as potential expected growth. If you are entering into a contract, the terms of the contract should be thoroughly analyzed and factored into the decision.

Andrew Goldman is an Isenberg School of Management MBA student at the University of Massachusetts Amherst. He has extensive experience working with small businesses on a consulting basis.

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